FDI can help realty majors DLF, Unitech reduce debt

The government's decision to allow up to 100% foreign direct investment (FDI) in completed projects can help realty majors DLF and Unitech, which have large base of commercial assets, in a big way.Prabhakar Sinha | November 14, 2015, 08:10 IST

NEW DELHI: The government's decision to allow up to 100% foreign direct investment (FDI) in completed projects can help realty majors DLF and Unitech, which have large base of commercial assets, in a big way. With access to FDI, now they can repay huge amount of piled-up debt or invest in new projects.

Most of the real estate companies have large office and commercial space, which they have given on rent. At the same time they are saddled with huge debt. For example, while DLF has debt of over Rs 10,000 crore, the amount is around Rs 6,000 crore for Unitech. As funds are scarce in India, the cost of debt is over 12%, and even 15% to 16% in many cases in real estate sector. Considering the rental income is between 9.5% and 10.5% of the capital value of the asset, a consultant said it is always profitable to liquidate a part of assets to repay the debt.

Foreign investors have to spend a portion of gain in hedging the currency depreciation.

But, a substantial portion of the cost of hedging would be met from value appreciation in underlying assets. In fact, such investments will also lead to bringing down the interest rates around the rate of rental income, said Anshuman Magazine, chairman & MD, CBRE South Asia Pvt Ltd, a realty consultant.